If yesterday's indications of the near-record overweight net long positioning in Russell 2000 Futures & incredible net short VIX futures positioning, along with the extreme flows contrarian indication was not enough to concern investors that the 'money' is in, then the following four charts should cross the tipping point. Citi's Panic/Euphoria guage for US stocks has only been more euphoric on two occasions - Q4 2000 & 2008; Goldman's S&P 500 positioning has only been this extremely long-biased on two occasions - Q4 2008 & Q2 2011; and Barclays' credit-equity divergence has only been this over-bought stocks on two occasions - Q4 2008 & Q2 2012. It doesn't take a PhD to comprehend the extent of excess priced into stocks currently - no matter what Maria B tries to tell us.
Citi's Panic/Euphoria Model indicates extreme 'euphoria' - which has led to significant equity market losses in the past...
Goldman's S&P 500 Positioning has only been this extreme long twice before - and both were followed by dramatic sell-offs....
and Barclays points out what we have discussed, that stocks (and implied vols) are dramatically over-priced relative to Investment grade credit...
and high-yield credit...
via Barclays,
At the index level, the drop in equity volatility over the course of the last month has resulted in credit spreads in the US appearing too wide relative to SPX weighted average implied volatility. While we have been highlighting this for the HY index over the last couple of months, the cheapness of credit relative to equity implied volatility is now a feature even in the case of the IG index.
Whether the smart money is all-in ready to unwind to the dumb money is unclear but one thing is clear - the US equity market is as levered long and over its skis as it has ever been - trade accordingly...
Source: Goldman Sachs, Citi, and Barclays